Advantages and Disadvantages of Investment in a Franchise to Obtain the E-2 Visa

E-2 investor visas permit foreign nationals to enter the United States to direct and develop a commercial enterprise in which they have invested a substantial amount of money or capital. There are numerous requirements for obtaining an E-2 investor visa that must be demonstrated before the visa will be approved. Many of these criteria can be challenging to prove which is why many investors consider a franchise to be an ideal choice for obtaining an E-2 visa. However, this is not always the case.

Many of our clients inquire about the potential to utilize a franchise as a vehicle to obtain the E-2 Visa. To understand the advantages and disadvantages of the franchise model for an E-2 visa, you must first understand the factors a consular officer will examine when analyzing your application for a visa. Specifically, in order to qualify for an E-2 visa, a foreign national investor must demonstrate the following:

1. Treaty with the United States and Citizenship of a Treaty Country

As an initial hurdle, the applicant must prove that there is a valid commerce and navigation treaty between their country of citizenship and the United States. Next, the investor must prove that the funds that are being used to invest in the enterprise were in the possession and control of a national or nationals of a treaty country.

At the time of the application, the foreign national must have either already invested in the enterprise, or have taken steps towards investment. This may include signing leases or contracts, purchasing equipment, or incorporating a business. The applicant will be required to make the investment without knowing whether the E-2 visa will be granted unless an escrow agreement is utilized with the sole contingency being the approval of the E-2 Visa. However, the funds must be irrevocably committed to the business.

A marginal business is an operation that may make enough money to support the investor and his or her family, but is not necessarily a thriving operation. To prove that the business is a real, operating, non-marginal commercial enterprise, the applicant must present a five year plan showing how the business will operate, earn a profit, grow, and contribute to the economy. Generally, the business will also need to hire and engage employees in order to meet the interpretation of the marginality requirement from USCIS or the Consulate.

5. Applicant Is in A Position to Develop and Direct the Enterprise

Finally, an applicant must show that the investment is active and that he or she will directly participate in the operation of the commercial enterprise.

E-2 Visa Franchise Advantages and Disadvantages

With these criteria in mind, the advantages of the E-2 investment visa seem self-evident, particularly when it comes to the last two criteria. A franchise is part of an existing business that, generally, already has an established record of success in the United States. A consular officer may well be familiar with a franchise and be inclined to treat an investment in a franchise as a “real, operating, non-marginal” commercial enterprise. Unlike other types of businesses, a franchise is typically a more traditional investment, with a storefront, inventory and equipment. The Consular or USCIS officer evaluating the application may be less inclined to see this as speculative business and accordingly more likely to approve this types of investment. In addition, because franchising agreements typically require oversight and guidance from the franchisor, it may be easier for the foreign nationals to meet the requirement of being in a position to develop and direct the enterprise. Franchise professionals can lend assistance with the management, operations and growth of the business — which is generally not the case with other types of investments in U.S.-based businesses.

On the other hand, there are disadvantages that frequently crop up when an investor attempts to invest in a franchise. Initially, there can be issues with timing. Many franchises require a prolonged training period prior to the opening or final purchase of the franchise which may be problematic for the investor as they will need to wait to file the E-2 until this period is completed. Likewise, many investors seek to purchase an existing business through an escrow to reduce risk in the event of delay or denial. However, with a franchise there are frequently additional hurdles including a separate franchise agreement and other requirements necessary from the franchisor that may make the use of an escrow problematic in meeting the irrevocable commitment requirement. Finally, investment through a franchise takes some of the control out of the hands of the investor as you will need to rely on documentation and timing provided by the franchisor in your filing of the application. This can, on occasion, cause delays with the processing of the application.

Investing in a franchise can be a smart strategy for not only obtaining an E-2 visa, but for ensuring that you launch a successful business in the United States. However, a savvy E-2 Investor will want to thoroughly investigate their options in determining if the franchise model is right for them. If you are interested in obtaining an E-2 investor visa, the experienced E-2 visa attorneys of Colombo & Hurd can help. Contact our Orlando office at (407) 478-1111 or our Miami office at (305) 455-0590 to schedule a consultation.